RF vs RM: which is more profitable?

Sunday, January 14, 2007

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Once again, the discussion or RF (royalty-free) and RM (rights-managed) photography takes center stage in a small flurry of emails I've received recently. This is usually the result of people reading impassioned arguments on stock photo discussion groups online. Usually, the thread of discussions goes like this: someone asks, "What's the best stock photo agency to join?" And this leads to the discussion between RF (royalty free) and RM (rights managed) image licensing. Some agencies focus on only one or the other, but other agencies do both, leading people to wonder which of RF and RM can be more proftiable.

This question isn't so easily answered because, despite the efforts of the internet rumor mill, "RF" and "RM" are not clear-cut definitions as their names would suggest. RF isn't "really" royalty-free, nor is RM a truly "rights-managed". Both are just marketing terms that are more suggestive about what you think you're buying. Both still involve legal license agreements; hence, both have restrictions. The difference is really just the details of the terms of those agreements, and that is the part that has no clear-cut definition.

Short history lesson: Long ago, images were licensed in a way that involved a base payment for a limited time frame, say a month, a year, or whatever... after which, continued use of the image involved a royalty payment based on the nature of the use. For example, a license may permit use for a book or a music CD, where royalties are paid based on the ongoing sales of units beyond the first year. when royalty-free images were first introduced, the idea was that you pay for use of the image once, after which there were no more royalties due. Originally, the license fee wasn't lower, it was just more permissive for ongoing use.

RF proved to be quite popular among buyers who were willing to pay the higher fee in exchange for lower administrative overhead. The time period in which RF images were more expensive was very short-lived. But in those early days, those who sold rights-managed images didn't complain because RF was still more expensive. Yet, as the buyers flocked to RF license schemes, it introduced a lot of competition in the space, causing a natural drop in prices. In fact, the prices dropped so low that those who didn't follow the RF found that they were now more expensive than RF. This is when the pendulum swung entirely in the other direction, and is what gave the impression that RF was undercutting prices for RM.

However, RF sellers were none too happy about the lower prices, too. In fact, they also looked at what people were actually doing with the images, and started revising the basic terms of their license agreements to better optimize the price points for the one-time uses that the vast majority of their clients were doing. And this is where the market fragmented into many parts. No one changed the pricing or the terms of their licensing in a similar enough way to reliably compare one agency to another. The same thing happened with RM. The net result is a flattening of the overall market, where the price/terms formula began to blur.

However, doing the analysis is not a science because there are too many fuzzy and imprecise methods by which many photo suppliers do business. The terms RF and RM stuck, but without enough specifics for them to be anything more than generic marketing terms. This is no different than using "Healthy" in food labeling. There are no standards by which one can use that term. You can "generally" believe that such products probably have less fat, calories, and sodium, but there are no guarantees. You have to read the labels.

The same is true for RF and RM license agreements. While RF "generally" refers to a license agreement that tends to permit more usage (i.e., less restrictions) than do RM license agreements, these are vague generalities. You can find some companies' RF terms are very different from another's. I've found one site that licenses RF images, but their actual supply of images that qualify for RF is much smaller than you'd think going into it. Another site's terms of usage for their RF images were so restrictive, you can actually get better terms for less money from other stock agencies' RM licenses. It seems that the buzzword "RF" has become so popular among photo buyers, that some stock sites are using it to "bait" potential buyers, much like local car dealerships do with ads in the newspaper on a low-ball price for a hot car, only to find that you can only get that one car, in a single color, and with a very limited and undesirable set of features. But that's OK; once the buyer is in the door, the seller would use the classic "bait-and-switch" technique to up-sell them to the higher-priced products.

In effect, the gap between RF and RM is even narrower once you consider the intangibles of the actual image quality and type of use you're looking for. If you were to actually break it down to the price-per-pixel, and the range of permitted uses, there to be much less difference than what it appears at face value. (This isn't so much to suggest that RF is fading away. It's more the case that they are drifting more toward one another.)

The final gap may be even closer to "equal" when you consider a real-life scenario. A buyer who recently licensed an image from me had described a recent shopping experience in RF: she just needed a quick image for a small ad in a magazine, and licensed an entire CD containing 100 RF images for $300. But, she only use the one image that was interested in (and should could only get it if she got the whole CD). Sure, she may have bought 100 images at $3 each, but in reality, this may have easily translated to the same $300 one-time license for the one image at the resolution he needed from an RM supplier. Which is why she came to me next. RM or RF doesn't matter as long as she's getting the photo she needs.

But, let's get back to the question about which may be more profitable for a photographer. You might think, based on my story above, that I'd say "RM" is the way to go. Well, it is for me, but that may not be the case for everyone. The answer to that isn't whether one is better than the other, but what qualities about your business model would lean more toward one or the other. In fact, this is precisely why the various license terms associated with different companies RF and RM price lists are so different. Other photographers and agencies have done the same calculation and determined where along the spectrum they can be in order to run profitable businesses. So, you should do the same.

The primary differences between RF and RM business models comes down to volume-pricing vs. per-unit pricing. You either want to choose a model that turns inventory quickly, making more money from the volume of sales; or you want to focus on each sale, making more money on a per-item basis. One is not better than the other, but your success is based on how well you can perform the tasks associated with one or the other. In the end, you'll find it's not so much black and white because your skills vary along a spectrum. As a result, so will the way you define your business.

Here is a way you can keep a mental score-card for where you might fit:

Consider the size of your current inventory, and the rate at which you add new images. The more you have, and the more you shoot, add some points to the volume-based model of RF. If you are slower and more deliberate (or it's a hobby), then add points to the RM column of your scorecard. Somewhere in the middle? That's OK. Guessing is legal.

If you are a specialty shooter that is very industry-focused (pick your industry), then it may make more sense to add to the RM column, but here's where you'll need negotiation skills and industry connections. If you don't have them, don't add too many points.

How are you at streamlined, office-automated assembly-line workflow projects? If you have no idea what I'm even talking about, remove points from the RF column. If you're ok with computers and software and can build a moderate website, but you don't have nearly the time necessary to build an automated site, you're probably better off adding to the RM column. But don't add too many points, and don't dismiss RF in your future. Now, if you can build a good e-commerce online sales engine, complete with keyword search, then add a few points to RF. But don't underestimate the need for strong inventory that grows continually.

Do you have a strong emotional need to guard your images closely and monitor each one's use and life-cycle? Tear up the scorecard. RM is your only option.

When you add up the points in the columns, you may find you're leaning in one direction or the other. Some more than others. Where you are along this spectrum is not set in stone, but the above worksheet provides good things to think about to edge you in the right direction. Once you feel like your compass isn't spinning anymore, start considering sales and marketing programs that fit into your model.

The take-home lesson here is: either business model works, just like any kind of restaurant can be profitable and manageable, whether it's a fast-food diner, a five-star French grill, or somewhere in the middle. One type of business doesn't necessarily have to encroach upon the other either; A McDonald's can do perfectly well next to a Harry Denton's--just as a microstock agency can do well along side a full-service RM stock photographer's website. So long as both are run intelligently, things work. If one starts to fail, the "losing" business was mismanaged either from the beginning, or by failing to change with the times.

If you've already chosen your business model, say RM, and you're finding it difficult to compete, don't be so quick to blame the existence of RF. Plenty of others are doing just fine, and they're competing in the same market as you. I won't delve into that here--I've already written copiously about that topic on my blog, which can be easily searched using keywords ("RF" or "RM").